Merkel’s visit to Greece highlights euro tensions

Commentary: Euro was supposed to bring peace, not riot police

WASHINGTON (MarketWatch) — German Chancellor Angela Merkel’s brief visit to Athens today put the Greek capital on a war footing.

Greek riot police fired teargas and stun grenades at tens of thousands of demonstrators who defied a ban on protests that had been imposed ahead of Merkel’s visit.

Reuters

Anti-austerity protesters unfurl a banner reading “Angela, don’t cry” in front of the Greek Parliament in response to German Chancellor Angela Merkel’s visit to Athens on Tuesday.

Some 7,000 police, including rooftop snipers, were deployed to secure the road from the airport to her meetings in central Athens, aided by a battery of iron fences and barricades. Half a dozen Metro stations were closed and traffic was restricted.

Merkel, of course, is seen by many Greeks as the iron fist behind the austerity measures being imposed on the country by official lenders in exchange for bailout funds.

The protests and draconian security measures reflect the growing tensions between the northern European countries that benefit from the euro
EURUSD, -0.7836%
and the southern European countries that are paying the price.

Merkel may enhance her domestic position with her visit by showing that she is in charge, but anything other than an announcement of dramatic relief for Greece was likely to exacerbate that tension. Her offer of 30 million euros in extra aid seemed almost like taunting in view of the billions needed by Greece to keep its economy afloat.

The protests against Merkel came amid reports of harassment of officials representing the “troika” of official lenders — water bottles and coffee cups thrown at them, cars kicked, and angry municipal workers chasing some of the technocrats down the streets of Athens.

It is hardly a coincidence that the three multilateral institutions seeking further drastic spending cuts in Greece are represented by two Germans and a Dane: Matthias Mors for the European Commission and Klaus Masuch for the European Central Bank are from Germany, and International Monetary Fund veteran Poul Thomsen was born in Denmark not far from the German border.

These three negotiators have been pushing the Greek government to front-load new spending cuts of 13 billion euros over the next three years into the first year, insisting on more than 9 billion euros of cuts next year.

Greek officials are pleading for mercy given the already substantial sacrifices being made by the public and arguing that austerity on the scale being demanded would lead to a social implosion.

But technocrats — and by all accounts it is the ultimate IMF technocrat Thomsen who is taking the hardest line — don’t have mercy in their mandate and it’s far from clear that Merkel or any European leader has the political clout to change the disastrous course that Europe is set on.

While Merkel dallied in the armed camp of Athens, Spanish Prime Minister Mariano Rajoy continued to ignore the street protests of hundreds of thousands voters to legislate more austerity in an effort to avoid, uh, austerity measures imposed as a condition for bailout.

As the Spanish grow increasingly frustrated in a country with 25% unemployment, a popular T-shirt has the slogan “Cuts … are necessary” along with a picture of a guillotine.

But German Finance Minister Wolfgang Schaueble cheerfully observed again this week that, by golly, those Spaniards are getting things whipped into shape and may not need to apply for bailout funds after all.

The ECB is waiting in the wings to buy the bonds of Spain and other southern European countries, but Nobel economist Joseph Stiglitz cautioned in a widely circulated op-ed last week that monetary stimulus cannot replace fiscal stimulus — especially in Europe, where the monetary boost is being made conditional on debt-reducing measures.

“If the conditions operate like austerity measures — imposed without significant accompanying growth measures — they will be more akin to bloodletting: the patient must risk death before receiving genuine medicine,” Stiglitz wrote. Fear of losing economic sovereignty will make governments reluctant to ask for ECB help, he added, and there won’t be any monetary stimulus unless they do. Read Stiglitz’s column on Monetary Mystification.

Can all this have a happy ending? Even if the austerity policies succeed in deflating the southern European economies over the next several years, what will happen to the massive resentment that is building up on both sides?

Merkel is accustomed to much friendlier crowds. The Greek protesters throwing rocks and waving Nazi flags showed her first-hand the anger and resentment engendered by Berlin’s insistence on austerity.

For the rest of the world, the spectacle of a European leader visiting another European capital shielded by riot police and water cannons is a sorry caricature of the peace and prosperity that is supposed to result from economic integration.

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